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GUIDE TO THIS ARTICLE

Use of the UNIDROIT Principles to help interpret CISG Article 26


Match-up of CISG Article 26 with counterpart provisions of UNIDROIT Principles


UNIDROIT Principles
Article 7.3.2 - Notice of Termination

CISG
Article 26

(1) The right of a party to terminate the contract is exercised by notice to the other party.

(2) If performance has been offered late or otherwise does not conform to the contract the aggrieved party will lose its right to terminate the contract unless it gives notice to the other party within a reasonable time after it has or ought to have become aware of the non-conforming performance.

A declaration of avoidance of the contract is effective only if made by notice to the other party.

For a counterpart to UNIDROIT Principles Article 7.3.2(2), see:

CISG
Article 49
[Buyer's right to avoid the contract]

1. The buyer may declare the contract avoided: (a) if the failure by the seller to perform any of his obligations under the contract or this Convention amounts to a fundamental breach of contract; or (b) in case of non-delivery, if the seller does not deliver the goods within the [reasonable] additional period of time fixed by the buyer in accordance with paragraph 1 of article 47 or declares that he will not deliver within the period so fixed.

2. However, in cases where the seller has delivered the goods, the buyer loses the right to declare the contract avoided unless he does so: (a) in respect of late delivery, within a reasonable time after he has become aware that delivery has been made; (b) in respect of any breach other than late delivery, within a reasonable time: (i) after he knew or ought to have known of the breach; (ii) after the expiration of any additional period of time fixed by the buyer in accordance with paragraph (1) of Article 47, or after the seller has declared that he will perform his obligations within such an additional period; or (iii) after the expiration of any additional period of time indicated by the seller in accordance with paragraph (2) of article 48, or after the buyer has declared that he will not accept performance [emphasis added]. [Notice within a reasonable time is similarly emphasized in the CISG's provision on seller's right to avoid the contract (CISG Article 64).]

[The UNIDROIT article displayed above is to be read in conjunction with the Official Comments on it as "the comments on the articles are to be seen as an integral part of the Principles" (UNIDROIT).]


To examine CISG provisions displayed above in their context, go to the full text of the CISG || To examine UNIDROIT Principles displayed above in their context, go to the full text of the UNIDROIT Principles


Editorial remarks

COMPARATIVE ANALYSIS

Selected Notice Requirements under CISG, PECL and UNIDROIT Principles: CISG Arts. 39 & 26; UNIDROIT Principles Arts. 1.9, 3.14, 7.3.2.; PECL Arts. 1.303, 3.304, 4.112, 9.303, 13.104

Camilla Baasch Andersen [*]
November 2004

  1. Introduction
  2. CISG Vantage Point: All Non-conformities Require Specific and Timely Notice
  3. PECL and UNIDROIT Principles: Only Avoidance ("Termination") Requires Notice
  4. Form of "Notice"
  5. Case law and Issues of Notification
  6. Timelines
  7. Specificity
  8. Conclusion

I. Introduction

Doctrinal writing and caselaw on the problems of notice giving abound where the CISG is concerned (whereas there is little reported on the PECL or UNIDROIT) - it is one of the most popular areas of dispute as a proper notification is central to any remedial relief. The second opinion from the CISG Advisory Council [1] focuses on the requirements of examination and notification, and contains an overview of the relevant caselaw on point.

CAVEAT on terminology: Any comparison of notice requirements under the PECL, UNIDROIT and CISG will unearth a significant difference in terminology. The CISG solely encompasses selected formalities concerning validity of contract (such as form of communication, form of contract: Art. 12), but sets most validity issues outside the sphere of application by way of Article 4(a). It thus does not concern itself with most cases where the contract is not valid due to misrepresentation, threat, fraud or similar formality. It also uses the term "avoid" for termination and revocation as the only language of contract cancellation. In contrast, both the UNIDROIT Principles and the PECL refer to rescission by the term "avoid" and use "termination" for the equivalent to the CISG term "avoidance". The following will employ CISG terminology and indicate where it is not used in the same manner in the UNIDROIT Principles and the PECL.

II. CISG Vantage Point: All Non-conformities require specific and timely notice

Article 39 CISG requires notice for ALL non-conformities, and in addition to this Article 26 CISG requires notice in case of avoidance specifying this remedy. Both must be given within "reasonable time". A single notice can satisfy both requirements. The consequence of not giving a notice within reasonable time is for Art. 26 that the contract cannot be avoided, and for Art. 39 a complete loss of all remedies under the CISG (excepting the existence of a reasonable excuse under Art. 44 or the sellers bad faith or negligence under Art. 40 - the latter will only apply if notice is given within the two-year cut-off period in Article 39(2)).

Both notices pose two problems. First of all, what is "reasonable time" (CISG Arts. 39 and 26, and, secondly, what is what degree of particularity is required, i.e., in "specifying the nature of the non-conformity" (CISG Art. 39) and/or providing a proper "declaration of avoidance" (CISG Art. 26).

III. PECL and UNIDROIT: Only Avoidance ("Termination") Requires Notice

In the PECL and the UNIDROIT Principles, there are two immediate contrasts to the CISG approach.

First of all, because these two sets of principles also deal with the validity of contracts, they include notification requirements for rescission of contract in case of invalidity, which they both term "avoidance" (UNIDROIT Principles Art. 3.14; and PECL Art. 4.112).

Secondly, in contrast to CISG Art. 39, not all remedies in effect of breach require a formal notification under the PECL or UNIDROIT. However, the two counterpart instruments do contain requirements for notification of avoidance (CISG terminology) like CISG Art. 26 does, namely in PECL 9.303 and UNIDROIT 7.3.2.

The CISG equivalent to the notification requirements in the UNIDROIT Principles and the PECL is thus not Art. 39, but Art. 26. However, the notice provision in Art. 26 also requires that the conditions of Art. 39 be met, as no remedy can be exercised without a CISG Art. 39 notice. Note, however, that in the CISG regime a notice can serve as both Art. 26 and Art. 39 notice if it adequately meets the requirements for each provision; therefore, separate notices are not required. Thus, where a buyer wishes to avoid a contract based on a non-conformity of the goods, the situation is very similar under all three regulatory frameworks.

Interestingly, both sets of Principles do set out the timeliness of notification as "reasonable time" in line with the CISG timeframes, but do not assist in the determination of how this reasonable time-period is to be measured. Reasonableness, while understandably palatable and thus popular in modern drafting, is a very wide and flexible term which can be understood very differently. It permeates both sets of principles as well as the CISG. But it does not specifically define anything, leaving the practitioner with little by way of a yardstick with which to measure a time-period (see section VI, infra, on the issue of timeliness).

The official UNIDROIT commentary [2] contributes the following with regard to the reasoning behind the provision 7.3.2:

Para. (1) of this article reaffirms the principle that the right of a party
to terminate the contract is exercised by notice to the other party. The
notice requirement will permit the non-performing party to avoid any loss
due to uncertainty as to whether the aggrieved party will accept the
performance. At the same time it prevents the aggrieved party from
speculating on a rise or fall in the value of the performance to the
detriment of the non-performing party.
[3]

While this can be helpful in determining the need behind a notification requirement and thus help indicate the necessity for speediness, it does not help define the concept of "reasonable time".

IV. Form of "Notice"

Extensions or embellishments of notice requirements are found in both UNIDROIT Principles Art. 1.9. and PECL Art. 1.303. These two provisions are remarkably similar in content, both providing that notice may be given by any "appropriate" means, that it is effective when reaching the addressee with "reaches" defined as delivered to business or mailing address or habitual residence. They also both define "notice" as a communication or declaration ("…of intention", according to UNIDROIT).

It seems unnecessary to restate these basic principles of offer and acceptance, common to all three regimes, especially for notice giving, and the fact that the CISG is commonly accepted to have the same rules for notices without such special codification would seem to render this regulating superfluous.

PECL Art. 1.303 contains a further embellishment of the distribution of risk for notices for non-performance delayed or altered in transit. Subsection (4) provides that such notices (including anticipatory non-performance) if dispatched properly, shall have effect as if they had arrived under normal circumstances. This curious special rule also seems superfluous, imposing a "mailbox rule" which is seen to apply to notices in other regulatory frameworks even without the inclusion of such a provision.

While these provisions do embellish the concept of a notice to some extent, they do not help as guidelines for any further determination of the two main problems of notification, namely timeliness and specificity. There is - as of yet - very little caselaw available on the application of the corresponding PECL and UNIDROIT provisions to assist with a determination of these issues.

An overview of CISG caselaw on the form of notice can be found in section 2 of the CISG Case Law annexed to the CISG Advisory Opinion 2.[4] Although there is no form requirement in the CISG for notice giving, one main problem is that oral/telephonic notices are difficult to prove, and many cases concern notices which the buyer claims were given over the telephone. The burden of evidence of notice giving is clearly on the buyer, and if this cannot be proven, the judge will not allow the buyer to rely on the notice, and this will result in the loss of a remedy (notwithstanding CISG Arts. 44 and 40).[5] It is worth noting that no form requirement in the CISG prevents the requirements of Arts. 39 and 26 from being met in a single notice if it specifies both the nature of the non-conformity and the intention to avoid (see section VI, infra).

V. Caselaw and Issues of Notification

Due to the lack of cases involving the UNIDROIT and PECL, an analysis of these issues is solely based on the caselaw of the CISG.

VI. Timeliness

Much has been written on the timeliness of notification under Art. 39 (which also includes Art. 26) of the CISG.[6] The immediate problem is that the timeframe is so flexible, and subject to different guidelines in its interpretation of "reasonable time". The timeframe was meant to be flexible, determinable by the facts of the case in each instance, but this poses a problem for numerous systems of law who wish to form into a more tangible/rigid concept (primarily Civil Law systems). In Germany and Switzerland, attempts for introducing a generous "grosszugige monat" guideline of an outside period of one month determinable by the facts of the case to reduce it have found some support.[7] In Austria, similar attempts to determine a more objective and rigid timeframe of 14 days have surfaced in caselaw.[8] The Swiss Courts have followed the German evolution of a one month timeframe in some cases.[9]

There is no clear way to define this timeframe, or the criteria which influence it. This is - although it ideally would not be - subject to the jurisdiction in question, and its influences. Most scholars and jurisdiction are in favor of retaining the inherent flexibility of the provision to suit it to each case, with the determination of certain criteria for shortening/lengthening it. Some criteria for reducing the timeframe in most circumstances include: rapid deterioration of the goods (economic or physical),[10] or other reason why time would be of the essence between the parties (See also CISG Art. 9). If more rigid standards for the determination of "reasonable time" were to become universally accepted across the different jurisdictions, then it might be possible to look for guidelines in the PECL or the UNIDROIT Principles, but no such standards exist here.

There is, in the official UNIDROIT commentary, a not very helpful definition of "reasonable time":

Reasonable time

An aggrieved party who intends to terminate the contract must give notice
to the other party within a reasonable time after it becomes or ought to
have become aware of the non-performance (para. (2)).

What is "reasonable" depends upon the circumstances. In situations where
the aggrieved party may easily obtain a substitute performance and may thus
speculate on a rise or fall in the price, notice must be given without
delay. When it must make enquiries as to whether it can obtain substitute
performance from other sources the reasonable period of time will be longer.
[11]

And in Art. 1:302 of the PECL, "reasonable" is defined as:

Under these Principles reasonableness is to be judged by what persons acting in good faith and in the same situation as the parties would consider to be reasonable. In particular, in assessing what is reasonable the nature and purpose of the contract, the circumstances of the case and the usages and practices of the trades or professions involved should be taken into account.[12]

The overall conclusion on timeliness of notification would seem to be that it is flexible, based on circumstances of the case, for the CISG as well as the UNIDROIT timeframes, with the exception of those CISG jurisdictions which have attempted to introduce more rigid guidelines. It is clear that such jurisdictionally independent evolution of guidelines is an obstacle to applied uniformity of the CISG, but a reality nonetheless.

VII. Specificity

The degree of specificity required under CISG Art. 26 is not overly controversial. It must be evident to a reasonable person (using the criteria of CISG Art. 8) that the notice in question must clearly express the aggrieved party's wish to avoid the contract as a remedy in consequence of a particular breach. Implied intentions to avoid can be permitted, but the implication must be very strong.

The specificity required under CISG Art. 39, however, is a different and far more controversial matter. The notice must sufficiently specify the nature of the non-conformity, meaning exactly what is wrong with the goods, enabling the seller to determine a choice of action based on the notification and any request for relief. Some cases have applied this doctrine of specificity very harshly, cutting the buyer off from all relief where details of the non-conformity were lacking in the notice, even in a (strongly criticized) case where the language used to describe the non-conformity was an established phrase in the specific trade ("soft truffles" = worm ridden).[13]

Note that Art. 44 CISG may help to provide an excuse for why no properly specific notice is given, but a successful excuse for this has yet to surface in the caselaw.

VIII. Conclusion

In conclusion, a comparison of the texts of the notice requirements under the three regulatory frameworks discloses that although structured differently, and with the major discrepancy of the CISG notice requirement for all exercising of remedies in Art. 39, the three sets of rules are very reminiscent of one other.

Nevertheless, with the exception of the official commentaries, there is no aid to be found in either set of Principles which may be applied in interpreting the two issues of timeliness and specificity of notice under the Convention. The two major issues of specificity and timeliness are not addressed in a helpful way, nor is there at the time of writing any reported caselaw from these two regimes which could plausibly be used as an inspirational guideline for resolving the problems in other regimes.

[See also commentary by the author on this subject in: John Felemegas ed., An International Approach to the Interpretation of the United Nations Convention on Contracts for the International Sale of Goods (1980) as Uniform Sales Law, Cambridge University Press (2006) 133-138]


FOOTNOTES

* Camilla Baasch Andersen is a lecturer in Commercial Law at the Centre for Commercial Law Studies, Queen Mary, University of London as well as a Fellow at the Pace Institute of Commercial Law. CISG-AC Opinion no 2, Examination of the Goods and Notice of Non-Conformity: Articles 38 and 39, 7 June 2004. Rapporteur: Professor Eric E. Bergsten, Emeritus, Pace University School of Law, New York; available online at <http://cisgw3.law.pace.edu/cisg/CISG-AC-op2.html>.

1. CISG-AC Opinion no 2, Examination of the Goods and Notice of Non-Conformity: Articles 38 and 39, 7 June 2004. Rapporteur: Professor Eric E. Bergsten, Emeritus, Pace University School of Law, New York; available online at <http://cisgw3.law.pace.edu/cisg/CISG-AC-op2.html>.

2. Available online at <http://cisgw3.law.pace.edu/cisg/principles/uni26.html#official>.

3. Id. Comment 1.

4. Available online at <http://cisgw3.law.pace.edu/cisg/CISG-AC-op2.html>.

5. See for examples of such cases:

    -     Germany 6 October 1995 Amtsgericht [Lower Court] Kehl, case presentation including English translation available online at <http://cisgw3.law.pace.edu/cisg/cases/951006g1.html>;
    -     Germany 22 June 1995 Landgericht [District Court] Kassel; case presentation available at <http://cisgw3.law.pace.edu/cisg/cases/950622g1.html>;
    -     Germany 23 May 1995 Oberlandesgericht [Appellate Court] Frankfurt case presentation including English translation available online at <http://cisgw3.law.pace.edu/cisg/cases/950523g1.html>;
    -     Switzerland 9 September 1993 Handelsgericht [Commercial Court] Zürich, case presentation available at <http://cisgw3.law.pace.edu/cases/930909s1.html>;

the latter clearly prescribes that the burden of proof for notice giving rests on the buyer.

6. See, amongst many other sources, the CISG Advisory Council's second opinion, available at <http://cisgw3.law.pace.edu/cisg/CISG-AC-op2.html>. See also Camilla Baasch Andersen, "Reasonable Time in Article 39(1) of the CISG", in Review of the Convention on Contracts for the International Sale of Goods (Kluwer 1998) 66-176, available online at <http://cisgw3.law.pace.edu/cisg/biblio/andersen.html> and Peter Schlechtriem, Commentary on issues associated with Article 39(1): Lack of conformity notice, timeliness, January 2000 (commentary provided with online case presentation at <http://www.cisg.law.pace.edu/cisg/cases/991103g1.html>). A bibliography of scholarly writing on CISG Art. 39 is available at <http://cisgw3.law.pace.edu/cisg/text/e-text-39.html>.

7. Introduced in the case

    -     Germany 8 March 1995 Bundesgerichtshof [Supreme Court], case presentation including English translation available online at <http://cisgw3.law.pace.edu/cisg/cases/950308g3.html>. The German Supreme Court's judgment also includes a reference to Swiss scholar Schwenzer's writing in von Caemmerer/Schlechtriem, Kommentar zum Einheitlichen UN-Kaufrecht (Commentary on the Uniform U.N. Law of Sales) 2nd ed., (in German).

Restated in many German cases since then, the latest reference in the Bundesgerichtshof [German Supreme Court] is:

    -     Germany 3 November 1999 Supreme Court, case presentation including English translation available at <http://cisgw3.law.pace.edu/cisg/cases/991103g1.html>.

But restatements of this principle abound in German law at all instances; see for example:

    -     Germany 29 January 1996 Amtsgericht [Lower Court] Augsburg, case presentation available online at <http://cisgw3.law.pace.edu/cisg/cases/960129g1.html>;
    -     Germany 2 July 2002 Landgericht [District Court] Saarbrücken, case presentation including English translation available at <http://cisgw3.law.pace.edu/cisg/cases/020702g1.html>; and
    -     Germany 26 May 1998 Oberlandesgericht [Appellate Court] Thüringer [Jena], case presentation including English translation available at <http://cisgw3.law.pace.edu/cisg/cases/980526g1.html>.

8. The "14-day" principle was first introduced in

    -     Austria 15 October 1998 Oberster Gerichtshof [Supreme Court], case presentation including English translation available at <http://cisgw3.law.pace.edu/cisg/cases/981015a3.html>;

and was recently restated in

    -     Austria 14 January 2002 Oberster Gerichtshof [Supreme Court], case presentation including English translation available at <http://cisgw3.law.pace.edu/cisg/cases/020114a3.html>.

9. See for instance Switzerland 30 November 1998 Handelsgericht [Commercial Court] Zürich case presentation available at <http://cisgw3.law.pace.edu/cisg/cases/981130s1.html>.

10. Scholars emphasized this before the Convention even entered into force, cf. John Honnold, Uniform Law for International Sales under the 1980 UN Convention (Kluwer, 1982): "Considerations indicating the need for speed include the perishable nature of the goods…" The reality of this consideration is extended to economic perishability, see Germany 6 October 1995 Lower Court Kehl, (where the court emphasized the need for speed as the goods were seasonal); case presentation including English translation available at <http://cisgw3.law.pace.edu/cisg/cases/951006g1.html>.

11. Comment 3, available online at <http://cisgw3.law.pace.edu/cisg/principles/uni26.html#official>.

12. For the definition of reasonableness recited in the Principles of European Contract Law and references to reasonableness in Continental and Common Law domestic rules, doctrine and jurisprudence, go to <http://cisgw3.law.pace.edu/cisg/text/reason.html#def>, with further references, and PECL Article 1:302. Ole Lando & Hugh Beale eds., Principles of European Contract Law: Parts I and II, Kluwer Law International (2000) 126-128. To drive home the correlation between the PECL's definition of reasonableness and the evident same meaning of this term to CISG legislators when they used the concept either specifically or as a general principle of the uniform law they drafted, see <http://cisgw3.law.pace.edu/cisg/text/reason.html#over>.

Reasonableness is also regarded as a general principle of the CISG. See Overview Comments on Reasonableness, Albert Kritzer, available online at <http://cisgw3.law.pace.edu/text/reason.html>; "Reasonableness is specifically mentioned in thirty-seven provisions of the CISG and clearly alluded to elsewhere in the Uniform Sales Law. Reasonableness is a general principle of the CISG." See also comments by Jelena Vilus, available online at http://cisgw3.law.pace.edu/cisg/text/reason.html#vilus>.

13. See Germany 24 January 1996 Landgericht [District Court] Bochum, case presentation including English translation available at <http://cisgw3.law.pace.edu/cisg/cases/960124g1.html>.


Official Comments on Articles of the UNIDROIT Principles cited

Comments reprinted with permission from UNIDROIT

 

ARTICLE 7.3.2

(Notice of termination)

(1) The right of a party to terminate the contract is exercised by notice to the other party.

(2) If performance has been offered late or otherwise does not conform to the contract the aggrieved party will lose its right to terminate the contract unless it gives notice to the other party within a reasonable time after it has or ought to have become aware of the offer or of the non-conforming performance.

COMMENT

1. The requirement of notice

Para. (1) of this article reaffirms the principle that the right of a party to terminate the contract is exercised by notice to the other party. The notice requirement will permit the non-performing party to avoid any loss due to uncertainty as to whether the aggrieved party will accept the performance. At the same time it prevents the aggrieved party from speculating on a rise or fall in the value of the performance to the detriment of the non-performing party.

2. Performance overdue

When performance is due but has not been made, the aggrieved party's course of action will depend upon its wishes and knowledge.

It may be the case that the aggrieved party does not know whether the other party intends to perform, and either it no longer wants the performance or is undecided. In this case the aggrieved party may wait and see whether performance is ultimately tendered and make up its mind if and when this happens (see para. (2)). Alternatively, it may still want the other party to perform, in which case it must seek performance within a reasonable time after it has or ought to have become aware of the non-performance. See Art. 7.2.2(e).

This article does not deal with the situation where the non-performing party asks the aggrieved party whether it will accept late performance. Nor does it deal with the situation where the aggrieved party learns from another source that the non-performing party intends nevertheless to perform the contract. In such cases good faith (Art.1.7) may require that the aggrieved party inform the other party if it does not wish to accept the late performance. If it does not do so, it may be held liable in damages.

3. "Reasonable time"

An aggrieved party who intends to terminate the contract must give notice to the other party within a reasonable time after it becomes or ought to have become aware of the non-performance (para. (2)).

What is "reasonable" depends upon the circumstances. In situations where the aggrieved party may easily obtain a substitute performance and may thus speculate on a rise or fall in the price, notice must be given without delay. When it must make enquiries as to whether it can obtain substitute performance from other sources the reasonable period of time will be longer.

4. Notice must be received

The notice to be given by the aggrieved party becomes effective when the non-performing party receives it. See Art. 1.9.


Pace Law School Institute of International Commercial Law - Last updated January 5, 2007
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